Local firms run to catch up with Malaysian reforms

Mandani, the political slogan introduced by the Malaysia Government to refer to the policy framework of government, is meant to focus on good governance, sustainable development and racial harmony. While it is showing measurable progress, the test is now whether policy execution converts into productivity and broader gains for businesses and households.

Malaysia’s economy expanded by 5.2% in 2025, matching revised growth of 5.2% in 2024, and grew by a further 5.4% year on year in the first quarter of 2026. The 2025 fiscal deficit narrowed to 3.7% of GDP from 4.1% in 2024; the unemployment rate reached 2.9% in Q4 2025; and inflation averaged 1.4%. According to Agnes Wong, managing partner at Syarikat Ong Group, a PrimeGlobal member firm, these are signs that the Madani emphasis on domestic demand, investment and fiscal repair is working at the macro level.

There has also been progress in governance perceptions. Malaysia’s Corruption Perceptions Index score rose from 50 in 2024 to 52 in 2025, with its ranking improving from 57th to 54.

However, there are reservations about implementation and distribution. “Targeted subsidies, the expanded SST and the widening digital tax-compliance regime support fiscal sustainability, but they also impose transition costs on households and smaller businesses,” said Wong. “Therefore, Madani should be described as working in direction and in several measurable outcomes, but not yet as a finished transformation.”

However, this ambitious reform agenda is unfolding against an increasingly complex political backdrop. The government faces significant strain in maintaining policy coherence. Recent electoral setbacks, including the July 2026 Johor state election results, have highlighted a softening in support for the Pakatan Harapan base and a concurrent rise in Barisan Nasional’s assertiveness.

“These developments, compounded by internal party fractures and the persistent challenge of an increasingly consolidated Islamist opposition, have fuelled speculation regarding the government’s long-term stability and the potential for an early national poll,” said Dusun Chong, partner in MGI Worldwide member firm, Kevin How & Co PLT. “Consequently, the prime minister faces a dual challenge: managing the difficult economic trade-offs of structural reform, while navigating the delicate balancing act required to maintain cohesion among coalition partners.”

In the meantime, reforms have helped the local accounting industry make inroads with SME clients. SMEs are often described as the backbone of Malaysia’s economy. They make up roughly 96% of all registered businesses, contribute more than a third of gross domestic product, and provide nearly half of national employment. But they managed to have very little to do with accountants and there was a perception that they did not value their services.

Historically, many SMEs engaged accountants mainly for year-end compliance and were reluctant to pay for ongoing advice. The e-Invoice transition has started to change that relationship. In a 2025 survey of 500 Malaysian SMEs, 57% said they used accountants, bookkeepers or business advisers as a source of e-Invoice information. More than two-thirds saw value in e-Invoicing, while 72% expected better record-keeping, 67% greater efficiency and 55% better compliance. At the same time, only 30% felt they fully understood the system, and 42% cited implementation cost as a barrier.

“That combination suggests a shift,” said Wong. “SMEs increasingly recognise the value of trusted accounting support when the service solves an immediate operational problem. However, smaller businesses remain highly price-sensitive, and some still view accountants as a compliance cost rather than a strategic adviser.”

Chong feels that the perceived value of accountants among Malaysian SMEs remains largely unchanged; it does not help that the persistent influence of unqualified service providers in the market damages the reputation of the industry as a whole.

Foreign investment in Malaysia remains resilient. Key growth is concentrated in the services sector, led by significant momentum in data centres and the digital economy. The trend continued into 2026, with Q1 recording RM92.8 billion in total approved investments, 60.5% of which was foreign-sourced (RM56.2 billion). Although Q1 2026 FDI inflows of RM22.81 billion eased from the record Q4 2025 high of RM27.82 billion, investment levels remain solid, signalling continued investor confidence.

The leading foreign sources were Singapore, China, the United States, Japan and Hong Kong. Services accounted for the largest share of overall approvals, while advanced manufacturing and digital infrastructure following on its heels.

The Malaysian government has been busy reforming its tax laws, which creates new opportunities for growth for local firms. The most consequential changes for businesses and accounting firms have been tax digitalisation, a broader indirect-tax base, more demanding international-tax administration, sustainability reporting and a wider audit exemption.

Businesses with annual turnover above RM5 million and up to RM25 million entered the regime on 1 July 2025 are eligible for e-invoicing, while taxpayers below RM1 million were exempted under the published timeline. Malaysia’s 15% Global Minimum Tax framework applies to in-scope multinational groups from 2025, and HASiL issued implementation guidance in September 2025. A revised Transfer Pricing Tax Audit Framework was issued on 31 July 2025, including changes to penalties and surcharges.

Under the National Sustainability Reporting Framework, Group 1 Main Market issuers (those with market capitalisation of RM2 billion or more) began applying ISSB-based standards for 2025 reporting, with their first reports due in 2026. Other main market issuers entered the framework for annual periods beginning in 2026; ACE Market issuers and large non-listed companies follow in 2027.

There has also been a shakeup for the criteria for audit exemption. For periods beginning in 2026, an eligible private company that does not exceed at least two of three thresholds — annual revenue of RM2 million, assets of RM2 million and 20 employees, may elect audit exemption. The criteria generally must be met for the current and two immediately preceding financial periods, and certain categories, including subsidiaries of public companies and foreign companies, are excluded. The thresholds rise again in 2027.

“The expansion of audit exemption for qualifying private companies is also significant, as it will reduce the volume of traditional statutory audits while increasing the need for accounting, tax and advisory support,” said Pat Yin Lai, managing partner of Ecovis Malaysia.

With all this change, the market is tricky to navigate. “In our experience, demand is healthy, especially where regulatory change meets operational complexity,” said Wong. “E-Invoicing, SST, transfer pricing, Global Minimum Tax, sustainability reporting and the first wave of ISSB-aligned reports all require interpretation, systems work, documentation and assurance.

“The picture is less positive for routine statutory audit at the smallest end of the market,” she continued. “Rising audit-exemption thresholds will remove some recurring mandatory work. In our experience, SMEs continue to scrutinise discretionary spending, while compliance assignments are often compared primarily on price. At the same time, firms face higher labour, technology, quality-control and training costs. The result is a widening gap between the cost of performing good work and what some clients expect to pay.”

Not surprisingly, recruitment and retention remain the industry’s most persistent constraint. Firms still need strong technical accountants but increasingly seek people who can combine accounting knowledge with data, automation, sustainability and client-facing advisory skills. “Retention depends on competitive pay, manageable workloads, credible career paths, learning opportunities and flexibility,” said Wong.

The Malaysian accounting profession faces a significant challenge in the form of an increasingly aggressive regional talent market. “Our southern neighbour’s systematic efforts to recruit and integrate high-potential Malaysian talent into their ecosystem, underpinned by robust branding and career development opportunities, has intensified the competition for our own local professionals,” said Chong. “This ‘regional pull’ is not merely a recruitment issue; it is a strategic threat to the sustainability of Malaysian national talent pipeline.”

That talent is going to be desperately needed, as Chong sees the demand for sustainability reporting is rapidly intensifying as the regulatory landscape matures and a broader range of professional service providers enters the space.

Wong is seeing an uptick in e-Invoice readiness, implementation and compliance reviews, including data cleansing, system mapping, API or software integration, controls and post-implementation troubleshooting. There is also increasing demand for transfer pricing, global minimum tax and international tax documentation for multinational and cross-border groups.

Technology is going to be a big driver for clients as well as their accountants. “Outsourced finance, cloud accounting, dashboarding, cash-flow forecasting and virtual-CFO support for SMEs seeking timely information rather than annual accounts is going to increase,” she said, “MIA’s 2025 technology survey found that 26% of respondents had deployed cloud applications and 23% data analytics tools within the previous one to three years.”

More reform is also on the way. “In the coming year, we anticipate further developments regarding the proposed amendments to the Accountants Act 1967,” said Chong. “The Malaysian Institute of Accountants (MIA) is actively engaging with the Ministry of Finance and the Office of the Accountant General to refine the legislative framework. These reforms are essential to strengthening the MIA’s regulatory mandate, ensuring the profession remains future-ready, and further reinforcing our commitment to safeguarding public interest.”

“Malaysia’s 2026 growth has begun strongly, although external trade, energy prices and geopolitical conditions remain risks,” said Wong. “Overall, the next year should reward firms that can translate regulation and technology into practical business outcomes.”

Like many of their counterparts globally, Malaysian firms are going to need to become more specialised if they want to survive. “Wider audit exemption, automation and persistent talent shortages will require firms to move further away from traditional compliance work towards specialised assurance, technology-enabled accounting and higher-value advisory services,” said Lai.

As the Malaysian market continues to grow and develop its international reputation, local firms are going to have to grit their teeth and bear the growing pains.